Consumer confidence lifts to 3-year high

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By CommSec

Consumer confidence: The ANZ/Roy Morgan consumer confidence rating rose by 3.6 per cent to 121.8 in the week to August 21 – the highest reading since late 2013. Confidence is up 7.8 per cent over the year and well above the average of 112.4 since 2014.

All five components of the index rose in the latest week. The measure of whether it was a good time to buy a major household item, lifted to the highest reading in 3½ years.

What does it all mean?

Consumers are getting their mojos back! Confidence levels are now holding at the best levels in almost three years. And even more encouragingly households have remained relatively upbeat about their finances and the state of the economy. In particular the measure of whether it was a good time to buy a major household item, lifted to the highest reading in 3½ years – a result that if sustained, should bode well for the upcoming Spring buying season and subsequent Christmas spending period. More confident consumers are more likely to spend, although there are no guarantees.

Super-low interest rates, cheaper petrol prices and lack of inflation across the economy are all helping to ensure added savings for households. In addition the recent lift in the Aussie dollar and improvements in job security would be looked at favourably by households.

However the key factor behind the lift in confidence has to be the fact that the election is out of the way. Households and businesses can now get back to spending, investing and hiring across the economy.

The Reserve Bank would be encouraged by the lift in household confidence. However the higher Australian dollar and further stimulatory measures from other central banks is likely to ensure policymakers will contemplate another rate cut in coming months. CommSec has a further rate cut priced in for November.

What do the figures show?

Consumer confidence

The ANZ/Roy Morgan consumer confidence rating rose by 3.6 per cent to 121.8 in the week to August 21. Confidence is up 7.8 per cent over the year and well above the average of 112.4 since 2014. All five components of the index rose in the latest week:

The estimate of family finances compared with a year ago was up from +10 to +11;

The estimate of family finances over the next year was up from +27 to +28;

Economic conditions over the next 12 months was up from +4 to +10;

Economic conditions over the next 5 years was up from +11 to +17 – 3-year high;

The measure of whether it was a good time to buy a major household item was up from +36 points to +43 points – 3½-year high.

What is the importance of the economic data?

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

What are the implications for interest rates and investors?

Overall it is clear that the low inflation environment provides the central bank with scope to cut rates further if deemed necessary. The next round of inflation data is released in late October and the mostly likely timing for another rate cut would be at the November Board meeting.